IBM Acquires Equitant in BPTS Play

Looking to expand its financial services reach and consulting engagements
for business transformation, IBM announced Wednesday the purchase of
order-to-cash outsourcer Equitant.

The deal puts more industry expertise in the hands of the Armonk, N.Y.,
company’s business consulting services (BCS) division and its business
performance transformation services (BPTS) strategy. BPTS is a major
initiative
to marry business and technology services that started with
the buyout
of PwC Consulting for $3.5 billion in 2002.

Chris Gattenio, a spokeswoman for Equitant, said no jobs at its offices in
Dublin and Stamford, Conn., will be affected by the acquisition. She also
said the deal, which is expected to close in March pending regulatory
approval, won’t affect its customer base, which includes Microsoft , Cisco Systems , HP and Lucent Technologies . Financial terms were not
released.

“We really believe that IBM now gives us and our clients access to their
global reach, their industry-leading services, business transformation
consultants, IBM research,” she said. “They have phenomenal resources that now our
clients will have access to.”

Order-to-cash is the part of the financial process that covers a customer’s
purchase of a product or service, from the moment it is ordered to receiving
payment. In between the two activities, Equitant provides software and
services to handle activities like order capture, dispute resolutions,
billing, collections and financial reporting and analysis.

The software, called O2C Direct, is broken into five parts — OpenPay,
AR Collect, Collaborative Dispute Resolution, Executive Dashboard and Cash
Application Enabler — and is available for view online by its customers.

As an outsourcer and consultant, Equitant assesses a company’s financial processes
and determines how O2C Direct would help their operations. It then takes over management,
either on or off site.

IBM will roll Equitant’s expertise into its own services, outsourcing and
BPTS offerings, which will, in turn, help its own customer base. Big Blue has been
touting the opportunities in the BPTS sector, especially since launching
new BPTS offerings from its BCS division last year.

The Equitant deal is the latest in a string of moves IBM has made
recently as it looks to build out more BPTS contracts.

Last month, IBM announced a three-and-a-half year contract with U.K.
insurer Norwich Union (NU), which calls for IBM to help roll out a new
“pay-as-you-drive” auto insurance program.

Dubbed the first of its kind in the industry, the plan is to
enable NU to use real-time analytics
and supercomputing systems in order to understand the precise risk incurred
by individual drivers, and then offer them variable rate insurance contracts
based on precise risk and individual customer characteristics. In the
process, officials said, the engagement is expected to help transform NU’s
enterprise.

Mike Adler, a managing partner within IBM’s BCS division, called the deal
one of the largest pure consulting contracts IBM has ever signed. Although
he declined to provide a value on the contract, analysts have pegged the
deal at around $100 million.

It includes a plan called Process Improvement, which will analyze and
improve existing business services and manage the deployment of new
processes to enable Norwich Union to deliver services more efficiently.

In addition, Business and Architecture work is slated to focus on how the new
real-time systems will be built. The third leg of the deal includes work on
how to deliver the services and systems, both externally and internally.

Adler noted that it’s not as though NU is starting from scratch in
transforming its legacy systems. But in this case, the engagement with IBM
means both will be looking at the company’s value chain and seeing where to
plan for change.

“It might be something that calls for developing a service oriented
architecture in order to help systems interact better with
legacy systems,” he said. But in general, he added, “the challenges in the
insurance industry are that legacy systems are so antiquated, much of the
customer knowledge is baked into the code. So when you want to launch a new
product, or respond to regulatory needs,” it’s a much slower process. “We
understand Web services and SOA” as a way to build real-time functions into
legacy systems, he added. “So we’re certainly going to complement
each other.”

IBM also recently purchased Liberty
Insurance Services
from RBC Insurance of Canada, and struck a deal
with RBC for assisting in contact center management, policy administration,
claims management and payment receipt and reconciliation.

At the time of the
announcement in November, IBM said the industry would seek to cut costs and
improve efficiency by outsourcing and that it expected life insurance processing
to be a $2 billion market by 2005.

In the deal with Equitant, IBM’s Donniel Schulman, a vice president in
its BCS group, said the clients are looking for
value in partnering with companies that can transform, manage and operate
finance and administration operations over a sustained period.

IBM, which competes with providers such as Accenture in the BPTS sector,
said it took in more than $3 billion alone in BPTS revenues in 2004.

Erin Joyce contributed to this story.

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